Finals Module Law On Pledge and Mortgage: Coo - Form 12
Finals Module Law On Pledge and Mortgage: Coo - Form 12
Finals Module Law On Pledge and Mortgage: Coo - Form 12
COO – FORM 12
FINALS MODULE
LAW ON PLEDGE AND MORTGAGE
LEARNING OBJECTIVES:
NOTES:
b. That the pledger or mortgagor be the absolute owner of the thing pledged or
mortgaged;
c. That the persons constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof, that they be legally authorized for the
purpose;
d. That when the principal obligation becomes due, the things in which the pledge
or mortgage consists may be alienated for the payment of the creditor.
Third persons who are not parties to the principal obligation may secure the latter
by pledging or mortgaging their own property.
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
Any kind of obligation whether, pure or conditional, including natural, voidable and
unenforceable obligations may be secured by a contract of pledge and mortgage.
The amount of the loan is ordinarily much less than the value of the security.
The appropriation must be automatic without need of further act on the part of the
debtor. Hence, the prohibition does not apply to:
The following are rules apply in case of indivisibility of pledge and mortgage:
a. A pledge or mortgage is indivisible, even though the debt may be divided among
the successors in interest of the debtor or of the creditor;
b. The debtor’s heir who has paid a part of the debt cannot ask for the proportionate
extinguishment of the pledge or mortgage as long as the debt is not completely
satisfied;
c. Neither can the creditor’s heir who received his share of the debt return the pledge
or cancel the mortgage to the prejudice of the other heirs who have not been paid;
d. The above rules do not apply where, there being several things given in mortgage
or pledge, each of them guarantees only a determinate portion of the credit. In
this case, the debtor shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debtor for which each thing is especially answerable
is satisfied;
e. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors
are not solidarily liable.
It gives rise only to a personal right binding upon the parties but it creates no legal right
in the property.
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
Exercises:
I. Application.
4. What does it mean that pledge and mortgage does not give rise to legal right on the
property?
5. Why does the amount of the loan lesser than the amount of the security?
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
Topic 2 : PLEDGE
LEARNING OBJECTIVES:
NOTES:
It is necessary in order to constitute the contract of pledge, that the thing pledged be
placed in the possession of the creditor, or of a third person by common agreement.
Thing pledged may be alienated. The pledgee must give his consent to the sale.
Ownership passes to the vendee but subject to the rights of the pledgee.
a. To retain the thing in his possession or in that of the third person to whom it has
been delivered, until the debt is paid.
d. To bring the actions which pertain to the owner of the thing pledged in order to
recover it from, or defend it against, a third person.
e. To sell the thing pledged at public auction, if without his fault, there is danger of
destruction, impairment of diminution of the value of the thing.
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
f. To claim a substitute or demand immediate payment, if he is deceived in the
substance or quality of the thing pledged.
g. To sell the thing pledged at public auction if the obligation secured is not paid.
i. To collect the amount that becomes due on a credit pledged before such credit is
redeemed.
a. To take care of the thing pledged with the diligence of a good father of a family.
c. Not to deposit the thing pledged with a third person unless authorized.
d. To be responsible for the acts of his agents or employees with respect to the
thing pledged.
e. Not to use the thing pledged unless authorized or its preservation so requires.
f. To advise the pledgor, without delay, of any danger to the thing pledged.
The following are the conditions required in an extra-judicial foreclosure sale of the thing
pledged
c. There must be notice to the pledgor and owner, stating the amount due; and
The pledgee may appropriate the thing pledged if after the first and second auctions,
the thing is not sold. If the creditor appropriated the thing, it shall be considered as full
payment for his entire claim. He is thus obliged to give an acquittance for the same.
Page 5 of 14
THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
2.6 RULES OF THE PROCEEDS AFTER SALE OF THE THING PLEDGED
If the price of the sale is more than the amount due, the debtor is not entitled to the
excess, unless otherwise agreed.
If the price of the sale is less than the amount due, the creditor is not entitled to recover
any deficiency, notwithstanding any stipulation to the contrary.
a. Continue to be the owner of the thing pledged, until its sale, unless it is
expropriated;
b. To demand the deposit of the thing pledged should the creditor use it without
authority, or misuse it in any other way;
d. To bid and have preference at the foreclosure sale if he should offer the same
terms as the bidder;
e. To demand the return of the thing pledged upon the extinction of the principal
obligation.
a. To notify the pledgee of any flaw or defect of the thing pledged known to him;
otherwise, he answers for damages suffered by the pledgee;
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
c. To fulfill his principal obligation.
a. Return of the thing pledged by the pledgee to the pledgor or owner, any
stipulation to the contrary being void;
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
Exercises:
I. Application.
5. What happens with the proceeds after the thing pledged was sold?
Page 8 of 14
THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
Topic 3 : MORTGAGE
LEARNING OBJECTIVES:
NOTES:
3.1 MORTGAGE
Contract of Mortgage
A contract of mortgage is an accessory contract whereby the real property is made the
security for the fulfillment of a principal obligation.
Mortgage creates a real right. It directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the obligation
for whose security it was constituted.
The mortgage (creditor) may, therefore, demand payment from any possessor of the
mortgaged property; he may alienate or assign the mortgage credit (his right as
mortgagee) to a third person.
The mortgage does not extinguish the title of the mortgagor (debtor) who does not,
therefore, lose his right to dispose of the mortgaged property. The law considers void
any stipulation forbidding the owner from alienating the property mortgaged.
3.3 FORECLOSURE
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
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3.4 REDEMPTION
Exercises:
I. Application.
2. Explain Foreclosure.
3. Explain redemption.
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
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Topic 4 : CHATTEL MORTGAGE
LEARNING OBJECTIVES:
NOTES:
It is an oath in a contract of chattel mortgage wherein the parties severally swear that
the mortgage is made for the purpose of securing the obligation specified in the
conditions thereof and for no other purpose and that the same is a valid obligation and
one not entered into for the purpose of fraud.
The absence of the affidavit vitiates a mortgage only as against third persons without
notice, like creditors and subsequent encumbrances. In other words, they are not bound
by the mortgage.
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
4.4 OBJECT OF CHATTEL MORTGAGE CONTRACT
a. Interest in business
c. Vessels
d. Shares of stock
c. Administrative Code
After payment of the debt or the performance of the condition specified in the chattel
mortgage, the mortgagee must discharge the mortgage in the manner provided by law,
otherwise he may be held liable for damages by any person entitled to redeem the
mortgage. If the mortgagor defaults in the payment of the secured debt or otherwise
fails to comply with the conditions of the mortgage, the creditor has no right to
appropriate himself the personal property because he is permitted only to recover his
credit from the proceeds of the sale of the property at public auction through a public
officer in the manner prescribed in Section 4 of Act No. 1508.
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.
Exercises:
I. Application.
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REFERENCE
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THIS IS A PROPERTY OF ST. VINCENT COLLEGE.
ANY REPRODUCTION NOT AUTHORIZED BY THE SCHOOL IS PROHIBITED.